Is carrying debt into retirement one of the reasons you’re putting off your retirement? You’ve worked hard your entire life so you can have a comfortable lifestyle during retirement, which can make it a tough decision if you don’t feel you are financially prepared to stop working.
Being debt-free gives you a feeling of freedom, and helps to minimize the financial strain. This stress reduction is especially important when you shift from working a job to the enjoyment of retirement. While it’s important to be careful with your finances, don’t assume that carrying debt into retirement is necessarily the wrong decision. Instead, you need to look at your overall financial situation and create a plan that will carry you through the rest of your life.
Ideal Retirement vs. Real World
In an ideal situation, you aren’t carrying debt into retirement and you have plenty in savings to pay for the ongoing costs of living. While it’s a noble goal to pay off mortgages, car loans, and credit card debt before you retire, sometimes it’s not always possible.
Not all debt is negative. As you are considering your options for retirement, evaluate your “good debt” and “bad debt.” For example, if you have a competitive interest rate on your home loan, then it might be a better financial situation to put your cash into investments instead of paying off the house. Plus, you should talk to a financial advisor about tax strategies that can support your overall financial goals.
Making Debt Work for You in Retirement
Certain debt opportunities can be beneficial if it is a low-interest rate and you can leverage tax advantages. Also, consider the potential cash flow from investments. If you are carrying a mortgage on an investment property, then it’s possible that the rent collections are higher than your monthly costs.
On the other hand, if you have debt with high interest and no tax deductions, then it can be a smart move to pay these balances off instead of carrying debt into retirement.
Retirement Strategy: Pay Off Debt
Look for financial strategies you can implement to minimize your debt as much as possible before you decide to retire. When these balances are paid in full, then it decreases monthly payment requirements and gives you more flexibility to manage your cash flow.
If the idea of debt-free retirement is out of reach, then be wise about how you bring debt into retirement. Instead of setting a goal to be debt-free, reconsider with a practical goal of paying down bad debt as soon as possible.
You might consider debt consolidation or debt negotiation to manage debt before quitting your job. Ultimately, carrying debt into retirement can change your financial outlook, but you can find solutions to be strategic with your financial goals.